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Top 5 uses for your home equity

Top 5 uses for your equity

What’s the point of all that home equity if you’re not going to use any of it? That’s what Australians around the country are probably asking themselves. And when you consider the fact that, as the Australian Bureau of Statistics reported at the end of 2011, increase in equity was responsible for around a third of the 30 percent rise in household wealth during 2003-09, it’s not hard to see why. 

In fact, it seems more and more Australians are refinancing their home loans to make use of their gains, if a recent IBISWorld release is anything to go by. 

“Rising house prices have enabled many mortgage holders to refinance and release more of the equity in their homes,” said IBISWorld Industry Analyst Andrei Ivanov in a January 6 release. 

“This has encouraged households to spend on one-off big-ticket items, such as new cars, despite broader concerns about incomes and cashflow.”

Are you one of these equity-loaded Australians? If so, maybe it’s time you thought about spending that hard-earned gain. Here are a few options. 

Purchase a car

As the IBISWorld release indicates, this is already an option increasing numbers of Australians are turning to. Between 2009 and 2014, the total number of new cars sold increased from 916,050 to 1,122,100, with the average financed amount rising from $3718.63 to $6110.52. 

It makes sense that Australians are doing so. Motor vehicles are purchases on the higher end of the scale in terms of price, yet they’re also a daily necessity. And while car loans are always available to help Australians finance their vehicle purchases, it’s useful to have something to draw on for capital to pay for part, or even all, of the car. 

Go on a holiday

We all need a little bit of a break sometimes to recharge our batteries. There’s a reason why paid holiday leave is mandated by law — it’s a necessary part of the way work functions. 

Of course, getting together the necessary funding to pay for that holiday is another matter, particularly if it happens to be an expensive overseas one. And with Roy Morgan reporting that Australians passion for travelling to the US has increased over the last few years, it seems that’s exactly what Australians’ holidays are turning into. 

Invest in another property

One of the fantastic things about buying property is that it can turn into a perpetually self-reinforcing cycle — only in a positive way. 

When you purchase a property, it automatically becomes an investment as it begins to steadily accrue value. Then, when you’ve paid off enough of the mortgage and you decide you want to buy a new property purely in order to invest, you can use the resulting equity as a deposit on this new piece of real estate. Eventually, that property will also have built up a significant amount of capital too!

Invest in general

Of course, your equity’s investment potential isn’t solely limited to property. You can use it build an investment portfolio using a variety of different asset classes, from managed funds to shares. 

Not all of these types of investments require a lot of capital. Managed funds, for instance, can be bought into with as little as $1,000. Still the more initial capital you have to put in, the more you stand to get out of your investment — not to mention that you won’t be closed out of more expensive purchases. 

Renovate your home

This is the classic option — expanding or making an addition to your home is one of the most typical uses equity gets put toward by homeowners. Whether you want to add a second bathroom, create a world-class outdoor patio or maybe even add a granny flat for an extra source of cashflow, your home equity is a fantastic way to finance this. 

What will you use your capital gains for?

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